Glossary

We’ve compiled an insurance glossary to help you make sense of some of the insurance terms on our website. Keep in mind that our terms and definitions are intended for information purposes only, and the way they’re interpreted and applied may vary slightly from state to state. These terms and definitions do not replace or otherwise alter the definitions and information that appear in individual insurance policies. A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Accident: An unplanned event that results in a loss for a driver.

Accident Forgiveness: A program offered by some insurance companies that does not raise premiums after an accident, regardless of who is at fault.

Accident Frequency: This number determines how often a driver is involved in accidents, which can help predict losses and base a premium.

Actual Cash Value: This is the current fair market value of property (after depreciation).

Additional Insured: A person or organization insured and protected under the named insured’s (covered driver’s) auto insurance policy.

After-Market Parts: Car parts and auto accessories that are not part of the original factory-installed parts.

Antilock Brake System (ABS): A vehicle’s normal brake system is supported by this high-pressure system, which allows all four wheels to slow and brake at the same rate.

Anti-Theft Device: A vehicle protection device that helps reduce the risk of vandalism and theft such as car alarms, motion detectors and recovery systems.

Appraisal: A professional estimate of a vehicle’s current value or the extent of property damage.

Arbitration: Settling a dispute with the help of an objective third party acts as an alternative to litigation.

Auto Insurance Premium Discounts: A variety of discounts offered by an insurance company for drivers that meet specified criteria, such as maintaining a good driving record, participating in group memberships and equipping the car with air bags and safety belts.

B

Blue Book: Publication that determines the value of used automobiles and trucks.

Bodily Injury Liability Coverage: Insurance that pays the expenses related to an injury or death of another when the inured driver is at fault. Also provides for legal defense.

C

Car Insurance: Insurance that protects against any kind of loss that involves an automobile.

Carrier: Also called the insurer, the carrier is the insurance company.

Certificate of Financial Responsibility: Also called the SR22. This documentation proves to the state motor vehicle agency that you have automobile liability coverage.

Claim: A request or demand that is made under the terms of the insurance policy.

Claim Adjuster: Professional hired to investigate a claim.

Collision Coverage: This type of insurance coverage pays to fix the damage of a vehicle that has been overturned or hit by another vehicle or object.

Comparative Negligence: Some states enforce this law, which allows the claimant to recover damages even when he or she is at fault.

Competitive Estimate: Multiple damage estimates requested by the insurance company.

Compilation Auto Repair Parts: Also called aftermarket parts. These are parts made by a third-party manufacturer and not the automaker.

Comprehensive Physical Damage Coverage: Insurance pays for auto damage caused by flood, fire, vandalism and other acts.

Continuous Liability Insurance: The length of time you have maintained auto insurance is considered the continuous coverage.

Contributory Negligence: Some states enforce this law, which prevents recovery by claimants who are partially at fault.

Coverage: The benefits and protection offered by the insurance company.

Covered Person: The named insured under the auto insurance policy.

D

Deductible: The amount predetermined by the policyholder that must be paid out-of-pocket before the insurance company will pay toward a loss.

Defensive Driver Discount: Drivers who complete a defensive driver course can receive this discount. Depreciation: The decreased value of property due to wear and tear. The amount of time the property is owned can also determine its depreciation.

Discount: A reduction in the insurance premium offered by the carrier for compliance with specified conditions that will reduce the likelihood of loss, damage and expense.

Driver Training Discount: Drivers who complete a driver training course may receive this discount.

E

Effective Date: The date that an auto insurance policy’s coverage begins.

Emergency Roadside Service Coverage: This is extra insurance protection that often covers costs of breakdown towing, charging a dead battery and flat tire repair.

Estimate: An assessment of how much damaged property will cost to repair.

Experience Rating: Past claim experience contributes to the determination of the premium.

F

Field Adjuster: Work personally with the public to negotiate claims, conduct scene investigations and inspect damages.

First Party: This term refers to the insured driver.

First Party Benefits: Also called Personal Injury Protection. Regardless of who was at fault, payment to policyholder is made to cover damage, loss, injury and other expenses.

First Party Claims: An insured’s claim for payment to cover damage, loss or injury.

Fraud: A false statement intended to deceive, which may void a policy.

G

Gap Insurance: Optional coverage that pays the difference between the value of the vehicle at the time of a total loss and the amount remaining on the loan for the vehicle.

Garage Location: The location where the vehicle is parked when not in use.

Good Student Discount: Full-time students with the passing grade of a B or higher can often receive this discount.

H

Hazard: An obstacle or situation that increases the chance of accident.

Hit and Run: An accident that occurs by someone who flees the scene.

I

Indemnification: Providing compensation for a loss with the intent to restore an individual to his or her financial position before loss occurred.

Inspection: Checking and verifying a vehicle’s condition.

Insurable Interest: Liability that may apply when a person suffers an economic loss due to personal injury or damage to his or her automobile.

Insurance: A system that pools together the risk of many drivers and vehicle owners in exchange for payment of a premium. The insurance carrier promises to cover losses that the policy holder experiences.

Insurance Fraud: Falsifying the facts to obtain payment that would not otherwise be paid.

Insurance Score: Used in some states to calculate rates. Insurance score is often based on the credit score.

Insured: A person or organization covered by an insurance policy.

Insurer: An organization that provides insurance.

L

Lapse in Coverage: When a policy is terminated or canceled there is a lapse in coverage.

Leased Vehicle: A long-term vehicle rental contract with a leasing company that retains ownership.

Liability Insurance: Money provided on behalf of the policyholder in the case of injury or damage caused by another driver.

Lien: A claim or charge on a property as payment security for a debt.

Loss: The dollar amount placed on damage or injury suffered.

M

Material Damage: Insurance that covers property-related losses.

Mechanical Breakdown Insurance: Covers repairs to a car’s mechanical parts.

Motor Vehicle Report (MVR): This is a report from the driver’s license agency that lists violations and accident history.

Multi-Car Discount: A discount often offered to those who insure more than one vehicle with the same insurance company.

N

Named Insured: Any person or organization identified (by name) as being insured in an auto insurance policy.

Negligence: When care or responsible action is not taken in a situation.

No-Fault Insurance: Auto insurance coverage that pays lost wages, medical care or other accident expenses regardless of who caused the accident. It is subject to limitations and is not available in all states.

Non-Renewal: The insurer does not renew a policy at the end of its period.

P

Payment Recovery: The insurance carrier will recover the deductable from the other party in the case of an accident that is not the insured driver’s fault.

Personal Auto Policy: The most basic form of auto insurance that covers liability, medical, physical damage and underinsured/uninsured motorist.

Personal Injury Protection: Insurance coverage that may pay lost wages, medical bills or other expenses regardless of who was at fault.

Policy: Written contract for insurance that binds the insurance company and the insured.

Policy Lapse: When a policy is terminated or canceled there is a lapse in coverage.

Policyholder: Also called Named Insured.

Premium: The price paid for risk over a period of time.

Primary Use: The main use of the insured vehicle.

Private Passenger Auto: Four-wheeled motor vehicles kept for personal use and subject to motor vehicle registration.

Property Damage Liability Coverage: Provides for legal defense and pays for the other party’s property if the insured driver is at fault in an accident.

Q

Quote: The premium amount that will be charged for insurance coverage based on the information provided by the quote requester.

R

Rate: The base rating units that determine the final premium (not to be confused with premium).

Red Book: Publication that determines the value of used automobiles and trucks.

Reinstatement: Restoring a canceled policy.

Rental Reimbursement: Insurance pays for a rental vehicle when the insured vehicle is damaged. Usually requires an additional premium.

Replacement Cost: The amount of money that will repair or replace an insured item’s current cost.

Rider: The operator of an insured motorcycle.

S

Safe Driver Plan: A system that assigns points to certain accidents and convictions. Each point increases the baseline rates.

Self-Insured Retention: The amount of damages the policyholder will cover before umbrella insurance coverage begins.

SR22: Also called the Certificate of Financial Responsibility (CFR). This documentation proves to the state motor vehicle agency that you have automobile liability coverage.

Surcharge: The extra charge added by an insurer for risks not handled by normal insurance rating factors.

T

Third Party: A person who was not part of an original agreement but who has interest in the agreement.

Tort: Wrong or harm done to another intentionally or accidentally through negligence. Liability insurance for autos can help protect against unintentional tort claims.

Total Loss: The condition of an automobile that is beyond repair or the repair would cost more than the vehicle itself.

Towing and Labor: Reimbursement for a specific amount of towing and on-site labor that is included with physical damage coverage.

U

Umbrella Insurance: Additional liability insurance that may cover items left out by other liability policies.

Underinsured Motorist: Similar to Uninsured Motorist, this coverage pays for bodily injury sustained by a covered person resulting from an accident with an at-fault driver who does not have enough insurance to pay for the injuries.

Uninsured Motorist: This coverage pays for bodily injury sustained by a covered person resulting from an accident with an at-fault driver who is uninsured or flees the scene of the accident.

V

Vandalism: Intentional destruction of property.

Vehicle Identification Number (VIN): After 1980, every vehicle manufactured in the United States was assigned a 17-digit number for identification purposes.

W

Waiver of Collision Deductible: Coverage of your collision deductible in the case of damage or a hit-and-run accident involving an uninsured or unknown motorist.